21 May 2012 8:03 PM

The coalition must embrace this plan for tax and growth

Two years too late, there are some modest - but nevertheless encouraging - signs that the coalition are starting to realise that a policy programme designed to stimulate growth might be a good idea. Until now, ministers have tended to implore the private sector to step up to the plate without any particularly coherent explanation about what they are going to do in order to make it easier to actually carry out business in the UK. And the government has somehow managed to manoeuvre the debate into an apparent choice between austerity and growth. If framed in this fashion, everyone is going to prefer the sound of the latter.

Of course, the so-called austerity measures aren’t really a recipe for economic growth. They are simply a prerequisite. The financial crash of 2008 may have brought the woeful state of our public finances into sharp focus, but it was not the underlying cause of the problem. We have spent too long living beyond our means. The dire state of the global economy merely ensures we are facing up to this reality now rather than later. But we were already merrily driving in the direction of financial oblivion. The banking crisis simply applied more pressure to the accelerator. The coalition’s policy of trying to trim public spending by a little less than 1p in the pound each year might just be enough to ensure we don’t head over the edge of the cliff. But it can’t be expected to achieve much more than that.

Fortunately, today sees the publication of the 2020 Tax Commission’s findings. The Commission was set up by the Taxpayers’ Alliance and the Institute of Directors to take a longer-term, strategic view of taxation in Britain and how we should change it over the rest of the decade. The weighty 417-page report is worth reading in full if you are optimistic and open-minded enough to consider how we might want to get our economy into a fit and healthy state over five or ten years, rather than only worrying about how we prevent a full-scale meltdown today or tomorrow.

Its core recommendations are for a simpler, flatter tax system – one in which government spending is gradually reduced to a third of our total economic output rather than the eye-watering 50% it accounts for today. This would allow for a simple, straightforward and fair change to taxes on income. Every worker would receive their first £10,000 of annual income free of tax and then pay 30p for every additional pound they make. This new, easy-to-understand rate would mean we would also do away with the current complexity of national income contributions, which are effectively a stealth tax on earnings.

The affluent would continue to pay much more than those at the lower or middle ranges of income. Someone on an £18,000 salary would pay £2,400 a year. A high earner on £100,000 per annum would face a tax bill of £27,000, more than ten times the amount.

But the real triumph of the 2020 Tax Commission’s suggestions is not just that they are well thought out, fair and sensible but that they actually inject some hope, optimism and vision into what has become an increasingly depressing and gruesome debate about how to dig ourselves out of the present quagmire.

A modern, dynamic, thrusting, entrepreneurial economy in the 21st century can surely provide the government services it needs, as well as a safety net for the poor, by spending one pound of every three earned in the economy.

In no small part, this would be because a simpler, lower tax regime would do much to encourage an upturn in our economic fortunes. The government would be taking and spending a smaller slice of an ever-growing pie.

The Taxpayers’ Alliance and the Institute of Directors have done the coalition - and the country - a considerable service by putting together this growth strategy. It maps out a clear, well-researched and upbeat picture of what our country could be like in a decade’s time.

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MARK LITTLEWOOD

Mark Littlewood is Director General of the Institute of Economic Affairs. He was educated at Balliol College, Oxford, where he read Philosophy, Politics and Economics.

He went onto study at City University Law School. Since 1995, Mark has worked in political communications, public relations and public affairs – variously for the European Movement, the Environment Agency and the London Bus Initiative.

In 2001, he became Campaigns Director for the human rights group Liberty, leaving in 2004 to found NO2ID, the group which opposes identity cards and the database state, and became its first national co-ordinator.

From December 2004 to May 2007, Mark was Head of Media for the Liberal Democrats. In 2007, Mark co-founded Progressive Vision, a classical liberal think tank and was its Communications Director until November 2009.